Cvs Elbows Into Crowded Orlando Market

Cover Story

Drugstores are thick as love bugs in Central Florida. You can't go anywhere without running into a knot of them.

There doesn't seem to be a major road in the area without a new Eckerd or Walgreens, and sometimes there are both -- smack across the street from one another.

The two chains control the market, but a third is about to challenge them. CVS Corp., the nation's No. 1 pharmacy chain, is making a major push into the Orlando area.

But it could have a difficult time establishing itself here.

The reason: a lack of affordable land in good locations.

Eckerd and Walgreens have built dozens of stores in recent years -- grabbing many of the best sites and driving up real estate prices for the locations left over.

CVS could end up paying big money for less desirable sites, real estate brokers said.

Also, it's far from certain whether the area can even support another big drugstore chain.

Shareholders are pushing CVS to enter new markets to increase sales and boost profit, but "eventually, you're going to run into some very well-established competition," said Neil Stern, a partner in the Chicago retail consulting firm of McMillan/Doolittle.

CVS officials won't say how many stores the company plans to build here, but "you're going to see them strive to be the No. 1 or No. 2 player in the market," said David Magee, an analyst with Robinson-Humphrey in Atlanta.

It can't do that without land.

Eckerd and Walgreens have about 70 stores each in the Orlando-Daytona Beach market. CVS would need about as many to compete.

So far, CVS has confirmed only one full-service location, a 10,380-square-foot store opening next month on Conroy-Windermere Road at Dr. Phillips Boulevard in southwest Orange County.

It will be similar to an Eckerd or Walgreens, with a drive-up window and much of its sales floor set aside for merchandise such as videos, greeting cards and groceries. Those so-called "front store" sales account for about 40 percent of CVS' total sales.

And like its competitors, CVS wants to open drugstores on busy thoroughfares, preferably at major intersections. Eckerd said sales increase 30 percent when it relocates a store from a strip center to a freestanding location.

This summer CVS filed plans with the city of Orlando for a drugstore on the southeast corner of east Colonial Drive and Mills Avenue. The 11,500-square-foot store would replace a group of shops and offices and stand directly across Colonial from an Eckerd. CVS' request for a permit for a drive-up window goes before the municipal planning board Oct. 17.

Last month, the company dropped plans for a store at Aloma and Lakemont avenues in Winter Park after 130 residents petitioned against it, arguing it could lead to an increase in noise and traffic and hurt property values. City planners agreed and recommended against it.

CVS is facing problems finding prime real estate in other markets, too. For example, residents in Pinellas County howled in protest this summer over plans to build a drugstore on the site of a Lutheran church. County commissioners struck it down.

Company officials wouldn't talk about site selection, but brokers familiar with the market say it must be difficult.

Stores like those CVS plans to build generally need 1.5 to 2 acres. An undeveloped parcel that size on a major thoroughfare could be had for less than $900,000 a year ago, said Alan Charron, president of Real Property Specialists Inc., an Orlando brokerage that has worked with Eckerd and Walgreens.

Now, "it's hard to find a site for $1.2 million," and prices of $1.5 million are common, he said.

CVS generally leases the land and buildings, preferring 10- to 20-year terms with options for five years, but rising real estate values would mean higher rents, making it harder for the stores to make money. Eckerd and Walgreens also lease most of their stores.

CVS bought six small drugstores last month in the Orlando area from Fedco Pharmacies Inc. of Miami Beach, but those aren't part of its larger expansion plans, spokesman Mike DeAngelis said.

The former Fedco locations are less than half the size of an ordinary CVS and specialize in complex and expensive drugs that aren't available at ordinary pharmacies. They don't sell general merchandise.

Prescription drug sales nationwide are expected to rise 18 percent this year to $143.5 billion, but "there's usually room for two good players, and . . . that puts the squeeze on somebody," Stern said.

That somebody may be newcomer CVS, or it may be Eckerd, he said.

Eckerd's parent company, J.C. Penney Co. Inc., has closed 270 underperforming Eckerd stores nationwide since January and says it will close nine others by spring. The company planned to close an additional 10, but it couldn't because of restrictive leases.